Trademark Infringement: Directors’ Personal Liability
Company directors ought to note a recent appeal ruling1 which exposes the risk of personal liability for infringement of intellectual property. If a dispute arises and a director was personally involved in infringing acts, they could find themselves personally liable to account for profits made.
The law states that a director is personally jointly and severally liable with the company in circumstances where they ‘intend and procure and share a common design that the IP infringement takes place’.
What happened?
Passing off and trademark infringement proceedings were brought against two company directors (they were spouses) and 16 companies in relation to the use of the sign SANTA MONICA POLO CLUB. The claimant company owned various registered trademarks for BEVERLY HILLS POLO CLUB.
At one trial, all the defendants were held liable. At the second trial, the two directors were held jointly and severally liable for the profits (totalling £837,000) they had made.
The question on appeal was whether the directors should be held liable for the whole profits made by one of the corporate defendants - or only for profits made themselves. The trial judge had calculated that if they were liable for the company’s profits, the additional amount payable by the two directors would be almost £3,130,000 and £313,000 respectively.
The directors argued that even if they were jointly and severally liable, no account of profits should have been ordered against them. So at issue was whether, when an account of profits is to be given where an accessory is jointly and severally liable with a principal as joint tortfeasor, is the accessory liable for profits they have made for themselves - or are they liable for the profits made by the principal?
Liability
First, were the directors liable per se to the claimants? Given their close personal involving in the acts of trade mark infringement – yes, they were, the court ruled.
However, the appeal judges made clear that a director (or other company officer) will not be liable merely because they are an officer. They must be personally involved in the commission of the tort before they can be held jointly liable. They must also be “sufficiently involved” – which is a question of fact. It was indisputable in this particular case that the directors were ‘sufficiently involved’.
The profits
The court ruled that the just and most sensible outcome was that an account of profits is confined to being an account of the relevant profits actually made by the person giving the account.
So the two directors here, who were jointly and severally liable with a principal, were liable only to account for the profits they had made personally. They were not accountable for those of the corporate defendant (to hold otherwise would raise a number of difficulties).
What does this mean?
The directors in this case will have been hugely relieved at the outcome, but the wider implications of a director’s conduct cannot be underestimated. No director or other officer of a company can embark on a course of conduct, such as IP infringement or other wrongdoing, and expect to avoid personal liability.
This decision makes clear that directors can and will be held personally liable, unless it can be demonstrated that they lacked sufficient involvement. Specialist advice must be taken.
1Lifestyle Equities CV v Ahmed ([2021] EWCA Civ 675
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